How are machining and manufacturing different?

In the modern business world, especially in manufacturing industries such as cosmetics, garments, electronics… we often hear the terms ” manufacturing ” and ” processing “. Although both are related to product creation, they represent two completely different business models and roles.

Understanding the difference between manufacturing and processing not only helps businesses orient their business strategies but also helps consumers better understand the origin and process of the products they use. Let’s explore these core differences.

What is Manufacturing?

Manufacturing is the comprehensive process of transforming raw materials into finished products through a series of manufacturing, assembly, and quality control stages. A manufacturing enterprise usually owns all or most of the following:

• Owning the brand and designing the product: The enterprise researches, develops ideas, designs and shapes the product according to its own brand strategy.
• Control the entire supply chain: From sourcing and importing raw materials, to manufacturing, packaging, and sometimes distribution.
• Owning factories, production lines and technology: Enterprises invest large capital in production infrastructure, machinery, technology and technical processes.
• Private R&D (Research and Development) team: Continuously improve products, research new formulas, apply new technologies to improve quality and create a difference in the market.
• Full responsibility for quality and risk: Any problems arising from product quality, manufacturing defects, or legal risks are borne by the manufacturing enterprise.
• Marketing and distribution activities: Build your own marketing strategy, promote your brand and set up a product distribution system to the market.

For example: Large corporations like Unilever (with OMO), P&G (with Ariel), Samsung, Apple… are all manufacturers in the true sense. They research and develop their own products, own their own factories and are fully responsible for their products from A to Z.

What is OEM/ODM?

Outsourcing is a form in which a business hires an outside partner (called a processing factory, contract manufacturer) to carry out part or all of the product manufacturing process according to its requirements and designs.

Common forms of machining include:

• OEM (Original Equipment Manufacturer): The factory manufactures products according to the customer’s available design, then applies the customer’s brand. The customer is responsible for design, marketing, and distribution.
• ODM (Original Design Manufacturer): The factory not only produces but also researches and designs the products, then resells them to customers and those customers put their own brand on them.
• CM (Contract Manufacturing): General term for outsourcing manufacturing to a third party.

Features of machining:

• Brand ownership belongs to the ordering party: The outsourcing enterprise is the owner of the brand and is responsible for the image, marketing, and distribution of the product.
• The processing factory carries out the production: The processing factory owns the facilities, machinery, workers and production experience. They receive orders, use raw materials (which can be provided by the ordering party or purchased by themselves as required) to produce.
• Risks and responsibilities are shared: Production and technical quality risks belong to the processing factory, while market and brand risks belong to the ordering party.
• No need for large investments in factories: Enterprises placing orders do not need to invest large amounts of capital to build and operate factories, minimizing financial and operational risks.
• Focus on core strengths: Businesses can focus resources on R&D, marketing, sales, and brand development instead of complex production management.

For example: A new laundry detergent brand wants to enter the market but does not have a factory. They can hire a professional laundry detergent factory to process the product according to their formula, design the packaging, then put their own label and bring it to the market.

When to choose outsourcing? When to manufacture?

  You should choose PROCESSING when:

• As a startup or small business, you want to test your product on the market without a large investment.
• Want to launch fast, take advantage of factory available formula.
• No R&D or manufacturing engineering team.

For example, you want to launch your own brand of laundry detergent. Instead of building a factory, you partner with a laundry detergent manufacturer to produce and package it under your brand.

You should choose SELF-PRODUCTION when:

• The business has developed stably and has the ability for long-term investment.
• Want to control quality, formula secrets, input materials.
• The goal is to scale up and optimize costs per unit of product.

For example, a big brand like Unilever, P&G owns its own factory to mass produce products with large capacity and strict standards.

Despite their distinct differences, both manufacturing and outsourcing play an important role in the global supply chain. The choice of which model to use depends on each company’s business strategy, financial resources, and long-term goals.

For consumers, understanding these two concepts helps us have a more transparent view of the product creation process, thereby making wise consumer choices and trusting in the quality of the products we are using. If you are looking for a reputable manufacturing and processing factory, THT is the best solution for your business.

Please contact THT Vietnam for fastest advice and support!